Note: assume the requirements of Sec. (§) 351 are satisfied….
Note: assume the requirements of Sec. (§) 351 are satisfied. Danielle, Farrah, Colin, and Earl form Magnolia Inc. (a C corporation). Danielle contributes land and a building used in her business in return for stock worth $40,000. Magnolia also assumes the $60,000 mortgage on these assets. Danielle originally purchased the building for $50,000. Farrah contributes a truck in return for stock worth $5,000 and a $5,000 cash payment. Colin contributes cash for stock worth $40,000. Earl receives stock worth $10,000 in exchange for the performance of services. Shareholder (S/H) Transfer to Corp. FMV Basis to S/H Stock Rec’d (by S/H) Other Prop. Rec’d (by S/H) Danielle Land $30,000 $12,000 $40,000 (debt relief—$60,000) Building $70,000 $38,000 Farrah Truck $10,000 $15,000 $5,000 $5,000 cash Colin Cash $40,000 $40,000 $40,000 None Earl Services n/a n/a $10,000 None All contributed assets were held for multiple years prior to the formation of Magnolia. What amount of gain (loss) is recognized by Farrah, and what is her basis in the stock received? (assume no election is made to reflect any deferred loss in the basis of the truck contributed to Magnolia)